In light of the announced goal of arbitration to resolve disputes “privately, promptly, and economically”, the decision of the American Arbitration Association (“AAA”) to publish and adopt appellate rules (even as an option) is somewhat shocking. However, effective November 1, 2013 where the parties have so agreed, asserted errors of law and even “clearly erroneous” factual findings may be challenged in an AAA administered arbitration. Lawyers have tried before to write into their arbitration agreements procedures for an appeal to the court system, but these efforts were met with mixed reception by the courts. In 2008 the U.S. Supreme Court essentially foreclosed such efforts. With these amendments, however, such an appeal would stay “within the system”. It would be an appeal to the AAA’s own retained panel, one to be comprised of former state and federal judges, as well as other panel neutrals with appellate experience.
Other significant news stems from the AAA’s effort to update its Rules (the current version governing litigation of Commercial Disputes had been last amended and effective on September 1, 2000). Overall these changes give still greater power to the arbitrator or panel, while putting correspondingly greater emphasis on their role and responsibility to make the process more efficient and cost-effective.
First, the amendments provide for “mandatory” mediation in cases involving claims of over $75,000 (but interestingly permitting parties to “opt out”, probably in recognition that you can “lead them to water, but…” {R-9) This arrangement resembles the wide spread practice today in our courts to press parties into mediation. The preliminary hearing, too, gets greater emphasis in planning the logistics and holding discovery to what seems really necessary (R-21, 22). Potentially dispositive motions are expressly allowed (R-33), whereas arbitrators previously had been discouraged from permitting their filing, as such relief would prevent the other party from having an evidentiary hearing. Arbitrators are also expressly given the power to sanction parties who do not comply with the Rules or the orders of the arbitrator or panel (R-58), and the rules governing emergency relief (which had been optional and not widely used) allow the parties themselves to quickly schedule a hearing and authorize interim awards and protective orders (R-38).
Despite the National Labor Relations Board’s rulings that arbitration agreements with class action waivers create an ”unfair labor practice” under the Act, this fall the Ninth Circuit confined that the federal courts will continue to rigorously enforce such waivers expressed in arbitration agreements even in the employment context.
An important split of authority has recently emerged among the federal courts concerning a court’s authority under Section 5 of the FAA to appoint an arbitrator for the parties when the agreed selection process has failed. The Seventh Circuit decision, while somewhat sidestepping the issue, recognized that our Fifth Circuit has refused to compel arbitration in such circumstances, finding that the parties’ choice of a particular forum and process was integral to their agreement to arbitrate. The Third and Eleventh Circuits have elected to appoint substitutes in similar cases and enforce arbitration.